On November 12, 2024, Kuroda Group announced its approval for listing on the Tokyo Stock Exchange’s Standard Market. In this article, we will explore Kuroda Group’s company profile, business model, offering details for the IPO, an analysis of the price mentioned in the prospectus, and a first-day price prediction. I will also provide insights based on the detailed information disclosed in the prospectus, so be sure to read through to the end.
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Kuroda Group’s Overview and Business Model
Kuroda Group consists of the parent company and 29 consolidated subsidiaries, including 13 manufacturing companies, 15 trading companies, and one management company. The manufacturing businesses are focused on niche markets and leverage years of expertise to produce and supply unique products in Japan and abroad, including countries like Thailand, China, and Vietnam. The trading companies have expanded to 12 countries and utilize a global supply network to provide electronic components and electrical materials to customers in the automotive sector. The supply chain is customized to meet the specific needs of each country, covering electrical materials, semiconductors, electronic components, and equipment.
For further details on their business model, I recommend reading Kuroda Group’s prospectus under the section titled “Business Overview” available on the Tokyo Stock Exchange website below.
https://www.jpx.co.jp/listing/stocks/new/mklp77000000l77d-att/12KurodaGroup-1s.pdf
Kuroda Group’s re-listing is backed by a private equity fund. Initially formed as KM Holdings in 2017, the company underwent a privatization process when it acquired Kuroda Electric Co., a company originally founded in 1945. Following the market shifts and a strategic overhaul, Kuroda Electric transitioned into Kuroda Group after privatization in 2018. Since then, Kuroda Group has focused on improving profitability, restructuring its governance, and transitioning into a holding company model, separating manufacturing and trading operations.
Their future growth strategy includes strengthening governance, enhancing capital efficiency, and pursuing stable, long-term growth through strategic investments, talent acquisition, and diversification of funding sources.
IPO Offering Details
– **Approval Date:** November 12, 2024
– **Indicative Price Range Announcement:** November 28, 2024
– **Final Pricing Date:** December 6, 2024
– **Listing Date:** December 17, 2024
Kuroda Group’s IPO will target both domestic and international institutional investors (excluding the U.S. and Canada). The IPO will employ the “Old Informational Report Method,” a specific offering method selected for certain IPOs based on the company’s market capitalization and offering size.
The underwriting syndicate comprises 8 firms:
– **Lead Underwriters:** SMBC Nikko Securities, Nomura Securities
– **Other Underwriters:** Daiwa Securities, Mitsubishi UFJ Morgan Stanley Securities, Mizuho Securities, SBI Securities, Rakuten Securities, Monex Securities
The prospectus price is set at ¥640 per share.
The offering breakdown is as follows:
– **Public Offering (Domestic + Overseas):** None
– **Sale of Existing Shares:** ¥7.77 billion
– **Over-Allotment:** ¥1.17 billion
– **Total Offering Amount:** ¥8.94 billion
This is a mid-sized IPO for 2024 in terms of offering size.
Prospectus Price Analysis
The prospectus mentions an indicative price of ¥640 per share. To estimate the company’s market value, I used a full dilution calculation, which takes into account all dilutive factors such as outstanding shares, stock options, and over-allotment options.
Using the figure of ¥640 per share multiplied by the fully diluted share count of 43,723,520, the company’s estimated market cap is approximately ¥27.98 billion.
Kuroda Group has also disclosed its financial forecast for FY2025, which shows a slight decline in revenue compared to the previous year, but the company expects higher margins at each profit stage. The forecasted EPS (Earnings Per Share) based on the expected net profit attributable to the parent company’s shareholders is ¥85.98, while the diluted EPS using the calculated fully diluted shares is ¥83.48. This results in a price-to-earnings ratio (PER) of 7.67.
### Competitor Comparison
To better understand Kuroda Group’s valuation, I compared its PER to those of similar listed companies in the electronics and components sector: Ryosan (8140), Lester (3156), and Elematec (2715). The PERs for these companies are 22.3x, 9.4x, and 16.4x, respectively. Among these, Lester has the lowest PER at 9.4x.
Based on Kuroda Group’s PER of 7.67x, it is trading at an 18.4% discount compared to Lester. It is common for IPOs to price shares at a 15-30% discount to fair value, and in this case, the discount appears reasonable.
First-Day Price Prediction
Taking Lester’s PER of 9.4x as a reference, we can estimate Kuroda Group’s fair value based on its forecasted EPS of ¥83.48. If we apply the PER of 9.4x, the fair value comes out to around ¥785 per share. However, given Kuroda Group’s attractive dividend yield of ¥60 per share (a significant 32.1% annualized yield based on the offering price of ¥640), the stock is likely to trade at a premium post-IPO.
By incorporating the high dividend yield, the true fair value could be closer to ¥1,037 per share (¥785 * 132.1%). While some may have concerns about the company’s private equity backing, the combination of rising margins, strong dividends, and a progressive dividend policy should make Kuroda Group an attractive investment. Therefore, my first-day price prediction for the stock is ¥1,037.
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